The opinion of the court was delivered by: Thomas F. Hogan, District Judge.

MEMORANDUM OPINION

The above-captioned cases are actions by the Federal Trade
Commission (FTC) and thirty-two States against Mylan Laboratories
and other drug companies for various federal and state law
antitrust violations. Pending before the Court are defendants'
motions to dismiss the complaints in both cases. There are three
motions to dismiss pending in FTC v. Mylan and three pending in
State of Connecticut v. Mylan. Defendants argue both that
plaintiffs have not stated a claim upon which relief can be
granted, and that this Court lacks subject matter jurisdiction
over certain aspects of the complaints. For the reasons set forth
below, defendants' motions will be granted in part and denied in
part.

I. BACKGROUND

A. Legal Framework

The first action is brought by the Federal Trade Commission
("FTC") under § 13(a) of the Federal Trade Commission Act,
15 U.S.C. § 53(a) ("FTC Act"), to secure a permanent injunction and
other relief against the defendants. Defendants are Mylan
Laboratories, Inc., Cambrex Corporation, Profarmaco S.R.L. and
Gyma Laboratories of America, Inc. The FTC alleges that the
defendants engaged and are engaging in unfair methods of
competition in or affecting commerce in violation of § 5(a) of
the FTC Act, 15 U.S.C. § 45(a). The Complaint contains eight
counts of unfair competition.*fn1 The relief sought by the FTC
is for the Court to (1) find that the defendants have violated §
5(a) of the FTC Act; (2) permanently enjoin the defendants from
engaging in such conduct; (3) rescind the defendants' unlawful
licensing arrangements; and (4) order other equitable relief,
including the disgorgement of $120 million plus interest.

The second case, State of Connecticut v. Mylan Labs, is an
action brought by thirty-two states against defendants for
violations of §§ 1 and 2 of the Sherman Act, 15 U.S.C. § 1 and
2, as well as various state antitrust laws. Plaintiffs bring the
action as parens patriae on behalf of natural persons; on
behalf of their state's general economies in their sovereign
capacities; and as injured purchasers or as reimbursers under
state Medicaid and other programs. The defendants are the same as
in FTC v. Mylan Labs, except that the State complaint names an
additional defendant, SST Corporation. The substantive
allegations contained in the State complaint are identical to
those in the FTC complaint, except that the State complaint
contains an additional ninth count alleging that Mylan and SST
entered into an illegal price-fixing agreement. As relief, the
States are requesting that the Court (1) find that the defendants
have violated §§ 1 and 2 of the Sherman Act; (2) permanently
enjoin the defendants from engaging in such conduct; (3) rescind
the defendants' unlawful licensing
arrangements; and (4) award treble damages; (5) award appropriate
relief under the state statutes; and (6) order other equitable
relief under federal law, including disgorgement and restitution.

The defendants have filed motions to dismiss in both
cases.*fn2 The six motions are:

After briefly reviewing the factual background of these cases,
the Court will address each of defendants' motions.

B. Facts

For purposes of the instant motions to dismiss, the allegations
of the complaints are taken as true. The facts below are
presented accordingly, and do not constitute factual findings.

These cases concern the generic drug industry. Generic drugs,
which are chemically identical versions of branded drugs, cannot
be marketed until after the patent on the branded drugs has
expired. Firms that manufacture and market generic drugs often
specialize in such drugs, although Mylan manufactures both
generic and branded drugs. Generic drugs are sold at substantial
discounts from the price of branded drugs.

Mylan and other generic drug manufacturers require the approval
of the Food and Drug Administration (FDA) to market a generic
product in the United States. For each generic drug, the
manufacturer must file an Abbreviated New Drug Application (ANDA)
with the FDA to establish that its version of the drug is
therapeutically equivalent to the branded drug. FDA approval of
an ANDA takes an average of about 18 months..

Typically, the generic manufacturer purchases the Active
Pharmaceutical Ingredient (API) from a specialty chemical
manufacturer (API Supplier). The generic manufacturer combines
the API with inactive filters, binders, colorings and other
chemicals to produce a finished product. To sell an API in the
United States, the API supplier must file a Drug Master File
(DMF) with the FDA. The DMF explains the processes that the API
supplier uses to make the API and to test chemical equivalence
and bioequivalence to the brand product. To use an API, the
generic manufacturer's ANDA must refer to the API supplier's DMF
filed with the FDA. More than one drug manufacturer can reference
the DMF of the same API supplier. A generic manufacturer that
wants or needs to change its API supplier must obtain FDA
approval of an ANDA supplement which includes a reference to the
new supplier's DMF and test results regarding the generic
manufacturer's product using the new API. This process averages
about 18 months, though it can take as long as three years.

Profarmaco (which is a wholly owned subsidiary of Cambrex)
manufactures APIs in Italy. Profarmaco holds DMFs for lorazepam
API and clorazepate API, and has supplied such APIs to drug
manufactures in the United States. Foreign firms, like
Profarmaco, that supply APIs to the United States typically have
distributors in the United States who purchase APIs and resell
them to generic drug manufacturers in the United States. Mylan
purchases its lorazepam and clorazepate API from Gyma,
Profarmaco's U.S. distributor of these products. Several other
drug manufacturers have purchased API from SST Corporation,
another U.S. distributor of this product.

The plaintiffs in these two cases allege the following
anti-competitive conduct on the part of the defendants. Mylan
sought from its API suppliers long-term exclusive licenses for
the DMFs of certain APIs selected because of limited competition.
If Mylan obtained such an exclusive license, no other generic
drug manufacturer could use that supplier's API to make the drug
in the U.S. Mylan sought exclusive licenses for the DMFs for
lorazepam API and clorazapate API as well as one other drug not
the subject of these lawsuits.

Mylan entered into contracts with Profarmaco and Gyma such that
these companies would license exclusively to Mylan for 10 years.
The exclusive licenses would provide Mylan with complete control
over Profarmaco's entire supply of lorazepam API and clorazapate
API entering the U.S. With complete control of Profarmaco's
supply of these products and by refusing to sell to any of its
competitors, Mylan would deny its competition access to the most
important ingredient for producing lorazepam and clorazapate
tablets.

In return for the 10-year exclusive licenses, Mylan offered to
pay Cambrex, Profarmaco and Gyma a percentage of gross profits on
sales of lorazepam and clorazapate tablets, regardless of who
Mylan purchased the API from. Mylan also tried to execute an
exclusive licensing arrangement with SST for control of its
lorazepam supply. This is significant because Mylan was not
authorized by the FDA to sell lorazepam manufactured with SST API
(i.e. Mylan's ANDA did not reference SST's DMF). Thus, the States
allege that Mylan was entering into a deal for exclusive rights
even though it would not have been able to use SST API until
after an ANDA Supplement had been completed, which usually takes
around 18 months. The plaintiffs' argue that Mylan's attempt to
obtain control over SST's supply, when Mylan could not even use
SST API, demonstrates the anti-competitive nature of Mylan's
actions.

On or around January 12, 1998, Mylan raised its price of
clorazepate tablets to State Medicaid programs, wholesalers,
retail pharmacy chains and other customers by amounts ranging
approximately from 1,900 percent to over 3,200 percent, depending
on the size of the bottle and the strength. On March 3, 1998,
Mylan raised its price of lorazepam tablets by amounts ranging
from approximately 1,900 to 2,600 percent. Shortly thereafter,
SST raised the price of lorazepam API by approximately 19,000
percent. SST sold the lorazepam API to Geneva, one of Mylan's
competitors, which raised its prices to approximately the price
of Mylan's tablets.

Under Fed.R.Civ.P. 12, a claim should not be dismissed "unless
it appears beyond doubt that the plaintiff can prove no set of
facts in support of his claim which would entitle him to relief."
Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80
(1957). In evaluating plaintiffs' complaints, the Court must
accept the factual allegations as true and draw reasonable
inferences therefrom in favor of plaintiffs. Square D. Co. v.
Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409, 411, 106
S.Ct. 1922, 90 L.Ed.2d 413 (1986).

B. FTC v. Mylan Labs

1. Defendants' Motion to Dismiss Under Rules 12(b)(1) and
12(b)(6)

Defendants have moved to dismiss the complaint in the FTC
Action because of a lack of subject matter jurisdiction. See
Fed.R.Civ.P. 12(b)(1). According to defendants, this Court lacks
subject matter jurisdiction under § 13(b) of the FTC Act for two
reasons: (1) § 13(b) does not authorize the FTC to seek a
permanent injunction in an antitrust case such as this one; and
(2) § 13(b) does not permit monetary relief such as the
disgorgement of profits sought in this case. These claims are
addressed in turn.

a. Permanent Injunction

The first issue is whether § 13(b) of the FTC Act permits the
FTC to seek a permanent injunction in an antitrust case. Section
13(b) states:

Temporary restraining orders; preliminary injunctions

(b) Whenever the Commission has reason to believe-

(1) that any person, partnership or corporation is
violating, or is about to violate any provision of
law enforced by the Federal Trade Commission, and

(2) that the enjoining thereof pending the issuance
of a complaint by the Commission and until such
complaint is dismissed by the Commission or set aside
by the court on review, or until the order of the
Commission made thereon has become final, would be in
the interest of the public-

the Commission by any of its attorneys designated by
it for such purpose may bring suit in a district
court of the United States to enjoin any such act or
practice. Upon a proper showing that, weighing the
equities and considering the Commission's likelihood
of ultimate success, such action would be in the
public interest, and after notice to the defendant, a
temporary restraining order or a preliminary
injunction may be granted without bond: Provided,
however, That if a complaint is not filed within
such period (not exceeding 20 days) as may be
specified by the court after issuance of the
temporary restraining order or preliminary
injunction, the order or injunction shall be
dissolved by the court and be of no further force and
effect: Provided further, That in proper cases the
Commission may seek, and after proper proof, the
court may issue, a permanent injunction. Any such
suit shall be brought in the district in which such
person, partnership, or corporation resides or
transacts business . . .

The FTC's authority to pursue an injunction in antitrust cases
was considered by this Court in FTC v. Abbott Laboratories,
1992 WL 335442, 1992-2 Trade Cas. ¶ 69,996 (D.D.C. 1992) (Gesell,
J.) dismissed on other grounds, 853 F. Supp. 526 (D.D.C. 1994).
In that case, the Court permitted the FTC to pursue a permanent
injunction in an antitrust case and rejected the argument that
preliminary relief only was available under § 13(b). Id. at
68,833. The Court held that the permanent injunction proviso
applies to "any provision of law" enforced by the Commission and
then concluded that the antitrust case at issue, involving a
price fixing conspiracy, "fell squarely within the jurisdiction
of the Commission's law enforcement responsibilities" under § 5
of the FTC Act. Id.

This Court can find no reason to depart from the Abbott Labs
holding. Defendants attempt to distinguish Abbott Labs on the
ground that it involved a per se antitrust violation (i.e. a
price fixing agreement), instead of a "rule of reason" antitrust
violation, but this argument is unconvincing. Although the
permanent injunction proviso speaks of "proper cases," there is
nothing in the statute, regulations or case law restricting the
statutory term "proper cases" to per se violations of the
antitrust laws. Indeed, several courts have explicitly rejected
such narrowing constructions. See, e.g., FTC v. Evans Products
Company, 775 F.2d 1084, 1087 (9th Cir. 1985) (holding that the
FTC may proceed under § 13(b) for any violation of a statute
administered by the FTC); FTC v. H.N. Singer, 668 F.2d 1107,
1111 (9th Cir. 1982) (stating that "the district court has the
power to issue a permanent injunction to enjoin acts or practices
that violate the law enforced by the Commission."); FTC v.
Virginia Homes Mfg. Corp., 509 F. Supp. 51, 54 (D.Md.) aff'd,
661 F.2d 920 (4th Cir. 1981). Accordingly, this Court finds that
the permanent injunction proviso may be used to enjoin violations
of "any provision of law" enforced by the FTC.
15 U.S.C. § 53(b)(1). Because § 5 of the FTC Act is a "provision of law
enforced by the Federal Trade Commission," § 13(b) allows this
Court to issue a permanent injunction. Defendants' motion is
therefore denied on this issue.

b. Monetary Relief

The second issue is whether the FTC may pursue monetary relief
in this action. In addition to an injunction prohibiting
defendants' conduct and rescission of defendants' unlawful
licensing arrangements, the FTC asks this Court to "order other
equitable relief, including the disgorgement of $120 million plus
interest." FTC Compl. at 22, ¶ 4. Defendants object to the FTC's
request on the ground that § 13(b) does not authorize
disgorgement or any other form of monetary relief.

It is true that the plain language of § 13(b) does not
authorize the FTC to seek monetary remedies. See
15 U.S.C. § 53(b). The FTC argues, however, that monetary relief is a natural
extension of the remedial powers authorized under § 13(b).
Although courts are generally disinclined to find remedies beyond
those that Congress has expressly granted, the equitable
jurisdiction of a federal agency such as the FTC must be read in
light of the principles articulated in Porter v. Warner Holding
Co., 328 U.S. 395, 66 S.Ct. 1086, 90 L.Ed. 1332 (1946). In that
case, the Supreme Court upheld the district court's authority to
refund the illegal rent overcharges pursuant to § 205(a) of the
Emergency Price Control Act of 1942, which expressly granted only
the power to enjoin illegal practices. The Court wrote:

[T]he comprehensiveness of this equitable
jurisdiction is not to be denied or limited in the
absence of a clear and valid legislative command.
Unless a statute in so many words or by a necessary
and inescapable inference restricts the court's
jurisdiction in equity, the full scope of that
jurisdiction is to be recognized and applied. "The
great principles of equity, securing complete
justice, should not be yielded to light inferences or
doubtful conclusions."

When Congress entrusts to an equity court the
enforcement of prohibitions contained in a regulatory
enactment, it must be taken to have acted cognizant
of the historic power of equity to provide complete
relief in light of the statutory purposes. As this
Court long ago recognized, `there is inherent in the
Courts of Equity a jurisdiction to . . . give effect
to the policy of the legislature.' Clark v. Smith,
38 U.S.(13 Pet.) 195, 203, 10 L.Ed. 123.

This motion seeks to dismiss the State complaint insofar as the
complaint asserts improper legal theories and requests for
relief. Defendants' claims are that: (1) the States' request for
monetary relief based on purchases from suppliers other than
Mylan is not authorized under federal antitrust law; (2) the
States' request for restitution and/or disgorgement should be
dismissed because it is not authorized by Section 16 of the
Clayton Act and it conflicts with the detailed scheme of
antitrust remedies enacted by Congress, as well as the principles
enunciated in Illinois Brick v. Illinois, 431 U.S. 720, 97
S.Ct. 2061, 52 L.Ed.2d 707 (1977); and (3) many of the
supplemental state law claims must be dismissed because the state
statutes do not permit injunctive and/or monetary relief
under the facts of this case. These claims are considered in
turn.

a. "Umbrella Liability"

The State complaint seeks to recover damages not only for
direct purchases from Mylan, but also for purchases from Mylan's
competitors. See State Compl. ¶ 50. The premise of the States'
request is that Mylan's competitors in the generic drug industry,
though not parties to the exclusive licenses nor members of the
alleged conspiracy, raised their prices as a consequence of
Mylan's actions. The States argue that defendants should be
liable for the difference between the prices charged by Mylan's
competitors and what those prices would have been had Mylan not
raised its prices pursuant to an illegal agreement.

The "price umbrella" theory of antitrust liability presented by
the States has not been considered by this Circuit or the Supreme
Court. Three circuits have addressed this theory. In Mid-West
Paper Products Co. v. Continental Group Inc., 596 F.2d 573 (3d
Cir. 1979), the Third Circuit held that the antitrust plaintiffs
in that case did not have standing to seek relief for purchases
from non-conspirators. The court rejected the umbrella theory for
three reasons. First, the court found that ascertaining damages
under such a theory would be "highly conjectural," as the court
would need to estimate what portion of the non-conspirators'
price increases was attributable to market forces and what
portion was fueled by the defendants' anti-competitive conduct.
Id. at 584-85 ("it cannot readily be said with any degree of
economic certitude to what extent, if indeed at all, purchasers
from a competitor of the price-fixers have been injured by the
illegal overcharge."). Second, the court found that determining
the effect of defendants' overcharges upon their competitors'
prices would transform the litigation into the sort of complex
economic proceeding that the Supreme Court in Illinois Brick v.
Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977),
counseled courts to avoid.*fn3 Id. at 585. Finally, the court
wrote that permitting a purchaser from a competitor of the
defendants to sue the defendants for treble damages was
incompatible with the antitrust goal of maintaining a competitive
economy. Id. at 586. For these reasons, the court held that
purchasers from competitors of price-fixing defendants may not
seek damages under an umbrella theory of liability.

The Fifth Circuit reached the opposite conclusion regarding
umbrella liability in In re Beef Industry Antitrust Litigation,
600 F.2d 1148 (5th Cir. 1979), cert. denied, 449 U.S. 905, 101
S.Ct. 280, 66 L.Ed.2d 137 (1980). The Beef Industry court
addressed the umbrella theory in a footnote, which states that an
umbrella-type injury (i.e. paying higher prices due to "price
following" by non-conspirators) "satisfies the test for proximate
causation." Id. at 1166 n. 24. Accordingly, the Beef Industry
court held that the antitrust plaintiffs in that case had
standing to sue the defendants for purchases from
non-conspirators.

The second basis of the Petroleum Products decision was that
claims based on umbrella liability are "unacceptably speculative
and complex." Id. at 1341. Echoing the Mid-West Paper
decision, the court found that "any attempt to ascertain with
reasonable probability whether the non-conspirators' prices
resulted from the defendants' purported price-fixing conspiracy
or from numerous other considerations" would be necessarily
speculative.*fn6 Id.

In light of Mid-West Paper and Petroleum Products, the
Court will grant defendants' motion to dismiss the States'
complaint insofar as it seeks umbrella damages. The main
difficulty with the umbrella theory is that, even in the context
of a single level of distribution, ascertaining the appropriate
measure of damages is a highly speculative endeavor. There are
numerous pricing variables which this Court would be bound to
consider to approximate the correct measure of damages, including
the cost of production, marketing strategy, elasticity of demand,
and the price of comparable items (i.e. the brand versions of
lorazepam and clorazepate). See Gross v. New Balance Athletic
Shoe, 955 F. Supp. 242, 246 (S.D.N.Y. 1997). (dismissing umbrella
liability claims as "the causal connection between the alleged
injury and the conspiracy is attenuated by significant causative
factors (i.e. independent pricing decisions of non-conspiring
retailers)"). The interaction of these variables is uncertain. As
noted in Hanover Shoe, 392 U.S. at 492-93, 88 S.Ct. 2224, "[a]
wide range of factors influence a company's pricing policies.
Normally the impact of a single change in the relevant conditions
cannot be measured until after the fact; indeed a businessman may
be unable to state whether, had one fact been different . . . he
would have chosen a different price." A judicial ...

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